Economics: 'The cranes will disappear from the skyline, the unemployment queues will grow and the growth rate will stop." This dire prediction about the state of the economy was made last Tuesday. But by whom, you may ask.

An alarmist and headline grabbing economist, surely? Or maybe one of those pain-in-the-neck international organisations - the IMF, OECD and ECB for example - that lecture us from time to time about our housing markets? An Opposition politician, perhaps? As a matter of fact, the words were spoken by the Minister for Justice, Michael McDowell.

The occasion was a pre-holiday summer spat between Government and Opposition. The context was another effort to warn us how the sky would fall on our heads if Labour and Fine Gael get back into government. But the imagery used says little about where the economy would go under the Opposition. If anything, it speaks volumes about where it has gone in recent years.

Through no fault of its own, the construction sector now bears a heavy burden on its shoulders, a burden we need to measure.

According to the latest Quarterly National Household Survey, some 253,800 persons were employed in the construction sector as of last February, more than double the 122,200 persons working in the sector in 1997. Total employment grew in that period from one and a half to two million persons, or by roughly one-third. As a result, the share of workers in construction consequently has risen by less than double. But it is still a significant change. From employing one in 12 workers in the economy in 1997 - roughly equivalent to the EU average - the construction sector now employs one in every eight workers. The share could even be as high as one in seven, counting the fair chunk of the extra 100,000 jobs created over the period by the surge in mortgage lending and related transactions.

Ponder if you will, the size of those numbers and the consequences of their returning to 1997 levels.

The rising influence of construction also shows up in the national accounts. In 1997 the construction of dwellings, roads and "other construction activity" accounted for about 12 per cent of total economic output, as measured by Gross Domestic Product (GDP). By 2004, according to the latest detailed accounts, that share had risen to 17 per cent. From accounting for one in every €8 of value in the economy, the construction sector now accounts for one in every €6.

Where the housing market has impacted on tax revenues directly, the construction sector has done so indirectly, although significantly. Stamp duties and capital taxes together accounted for just under 5 per cent of the total tax take in 1997. Last year the share was just under 13 per cent.

These figures are likely to overstate the total direct dependence on housing transactions in both years, there being a significant non-housing component in capital acquisitions and capital gains taxes. But the magnitude of the change is likely to be dominated by the housing market.

The indirect effect is hard to estimate, but a rough stab is possible: Going back to our statistics on employment, one in 12 workers were employed in construction in 1997. Income tax accounted for 41 per cent of all tax revenues back then.

So about 3.4 per cent of all tax revenues were attributable to construction sector income tax revenues.

By last year the share of workers employed had risen to one in eight. But the share of income tax in the total tax take had fallen to 29 per cent. So the share of total tax accounted for by income tax from the construction sector was broadly what it was in 1997, around 3.5 per cent. The dependency of income taxes on the sector is likely to have risen, however, although by less than the proportionate rise in the share of construction workers on account of reductions in the tax burden for lower paid workers since 1997.

Assuming that the construction sector's share of VAT revenues is broadly in line with its share of GDP, the rise in the latter has probably pushed construction related VAT payments up from around 3 per cent of the total tax take in 1997 to around 5 per cent now.

All in all, it would seem to imply that the share of taxes in government coffers attributable to the sector has roughly doubled under the present Government, from around 11 per cent in 1997 to around 21 per cent now, mostly because of stamp duties and capital gains tax, but with VAT also playing a part.

So McDowell may have a point. If the cranes disappear from the sky, the dole queues will lengthen and growth will falter. Employment in the sector will be the key variable to watch. As confirmed by the report of the Small Business Forum, the construction sector now accounts for more than one quarter of all small businesses in the state.

Of all the sectors of our economy, construction is perhaps the most vulnerable to rises in interest rates and confidence.

A new report from Farrell Grant Sparks suggests that, of the 195 business failures in the first half of this year, 71 were in the construction or engineering sectors and the vast majority of the these were in construction.

Whether it's building an extension, converting an attic or renovating a house, an ability to repay mortgage interest and a confidence in one's future earning power can make or break the decision to hire the builder.

Fortunately the Government has an ace up its sleeve in the form of the next National Development Plan (NDP). The plan aims to spend around €9.5 billion a year between 2007 and 2013 on a mixture of infrastructural investment projects.

That is precisely the period over which interest rate rises - of which there are several more to come - will begin to squeeze the sector.

As a discretionary policy tool, it can be used not only to provide badly needed infrastructure. It will also allow the Government to manage the cyclical impact of a downturn in demand for new houses - the mainstay of the construction boom over the last decade.

But there is one caveat: public infrastructure is less labour intensive than housing construction and much less labour intensive than the renovation, attic conversion or decoration activity on which so many small construction firms have thrived in recent years.

Let's hope the Government uses the NDP wisely. Before making pronouncements on cranes and dole queues they should remember one fact about employment creation in the construction sector: the brush is far mightier than the crane.